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TMI Blog2014 (7) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... India and for providing technical services outside India, which has not been pressed and therefore, Ground No.14 is dismissed as not pressed. Ground No.15 pertains to inclusion of interest income, gain on sale of fixed assets and other miscellaneous receipts from services to the total turnover for the purpose of computing deduction under section 10A of the Act. Ground No.16 pertains to levy of interest under section 234B. 3. Briefly stated, assessee is a company which is engaged in the business of software development services and is registered with Software Technology Parks of India (in short 'STPI') in Hyderabad. For the A.Y. 2005-06 it has filed return of income on 27.10.2005 showing income of Rs. 29,486 under normal provisions of Income Tax Act after claiming the deduction of Rs. 5,80,00,455 under section 10A of the Act. During the assessment proceedings, while verifying the claim of deduction u/s.10A of the Act, the A.O. noticed that the assessee has not excluded interest charges of Rs. 1,05,53,338, freight charges of Rs. 1,03,165 and expenses incurred in foreign currency of Rs.l,02,70,000 from the export turnover. AO excluded them from Export turnover. Since assessee had int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating cost of Rs. 39.24 crores, arms length price of operating cost was arrived at Rs. 48,91,80,921 and the shortfall was arrived at Rs. 4.27 crores. As briefly stated above, Ld. CIT(A), however, deleted one company "Satyam technologies" as not comparable and assessee got relief to that extent. The final list of 16 cases selected by the TPO after the order of the CIT(A) are as under : S. No. Name of the Company TP Order (WC adjusted) 1. iGate Global Solutions Ltd. 2.50% 2. Flextronics (Seg.) 30.42% 3. Geometric Software Solutions Co. Ltd. 18.57% 4. Lanco Global Systems Ltd. 10.23% 5. Larsen & Toubro Infotech Ltd. 9.26% 6. R S Software (India) Ltd. 7.47% 7. Sasken Communication Techn Ltd. (Seg) 14.02% 8. Sasken Network Systems Ltd. 14.80% 9. Visualsoft Technologies Ltd. (Seg. 20.96% 10. Bodhtree Consulting Ltd. 23.25% 11. Exensys Software Solutions Ltd. 64.29% 12. Sankhya Infotech Ltd. 22.03% 13. Four Soft Limited 22.23% 14. Thirdware Solution Ltd. 65.44% 15. Tata Elxsi Ltd. (Seg.) 23.68% 16. Infosys Technologies Ltd. 42.11% 5.2. Out of the above comparables, assessee is not objecting to the comparables selected by TPO from item 1 to 9. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable to a service provider: - Intoto Software India Pvt. Ltd. ( ITA No. 1196/Hyd/2010) - ITO Vs. Colt Technology Services India Pvt. Ltd. (ITA No. 609/Del/2011) - Integrated Decisions & Systems India (P) Ltd. Vs. DCIT ( ITA No. 27/JP/2011) - ACIT Vs. Sonata Software ( ITA No. 3514/Mum/2010) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 3. Sankhya Infotech Ltd. The learned counsel submitted that this company is functionally different as evident from the following: * Various disclosures in the annual report and response to 133(6) notice indicates clearly that the company is into software products (services are supplementary to products licensing) * The TP office has in subsequent year rejected this company as comparable relying on the same 133(6) response. The following rulings have analysed and rejected this company as it has software products : - ITO Vs. Colt Technology Services India Pvt. Ltd. (ITA No. 609/Del/2011) - Integrated Decisions & Systems India (P) Ltd. Vs. DCIT ( ITA No. 27/JP/2011) - ACIT Vs. Sonata Software ( ITA No. 3514/Mum/2010) - DCIT Vs. M/s Hellosoft India Pvt. Ltd. (ITA No. 645/Hyd/09) - Invensys Development C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: - Conexant Systems India Pvt. Ltd. (ITA No. 1429/Hyd/2010 and 1978/Hyd/2011) - Telcordia Technologies India P. Ltd. (ITA No. 7821/Mum/2011) - Logica Pvt. Ltd. (IT(TP)A No. 1129/Bang/2011) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 7. Infosys Technologies Ltd. The learned counsel submitted that this company is engaged in diversified activities including products, consultancy & solutions and this company commands a premium in the pricing of its products and services due to its goodwill, reputation and brand value. Further due to scale of operations, Infosys enjoys economies of scale, which results in lower cost of infrastructural facilities and overheads. Further, he submitted that the issue of comparability of Infosys to a small captive service provider is no longer res-integra. The following cases have specifically anlaysed in detail the comparability of Infosys on various parameters to a similar size software service provider and rejected it: - Intoto Software India Pvt. Ltd. (ITA No. 1196/Hyd/2010) - Virtusa India Pvt. Ltd. Vs. DCIT (ITA No. 1962/H/2010) - Patni Telecom Solutions Pvt. Ltd. Vs. ACIT (ITA No. 1846/Hyd/2012) - A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel. In the case of Intoto Software India Pvt. Ltd.,(supra) this comparable case was analysed and held as under: "17. Having heard both parties and having considered the material available on record, we find that there is no dispute that Assessee has accepted the Exensys Software Solutions Limited as one of the comparable companies when proposed by the TPO. However, the fact that there is an amalgamation of two companies i.e., Exensys Software Limited and Holool India Limited, the results of which, has resulted in high operating margin cannot be lost sight for. It has been held in many cases by this Tribunal as well as the Higher Forums that to compare a company with another company, both the companies have to be brought on par with each other after making the necessary adjustments wherever necessary and possible. However, where there are extraordinary events such as this, then those events have to be taken note of and where no adjustment can be made on account of this extraordinary event, then such company cannot be considered as a comparable. The objections to this company by Assessee are made for the first time before the Tribunal. The Tribunal being the final fact finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these companies on extraneous reasons stating that Birla Technologies Limited was incurring persistent losses. It was submitted that company has operating profits for the financial year 2005-06 and referred to the net margins computation as per annexure-5 filed before the CIT(A). Further, with reference to the VJIL Consulting Limited, it was submitted that payment of VAT does not indicate that assessee is engaged in sale of computer software and unless the same is analysed, rejection of the company just because it paid VAT on sales is not correct. 12. Having considered the above submissions, we are of the opinion that inclusion or exclusion of these companies would only be academic in nature as exclusion of 7 comparables out of the 16 selected by the TPO would result in OP/TC at 14.25% against assessee's margin of 13.89%. The above two companies average PLI is at 4.36%. Therefore, inclusion of the above two, if at all, would further reduce the PLI. Therefore, without going into the contentions, we are of the opinion that exclusion of above 7 companies itself would make the assessee's PLI at arm's length when compared to the average mean of the balance 9 comparables. In view of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.10A. Similarly, ground Nos. 2 to 4 in ITA.No.1775/Hyd/2011 pertains to similar direction in AY 2007-08. 19. A.O. restricted claim of the assessee for the reason that the definition of 'export turnover' in sec. 10A mandates exclusion of the above expenses. 20. Aggrieved, assessee filed appeal before the Ld. CIT(A) and the Ld. CIT(A) respectfully following the Coordinate Bench order of the Tribunal in the case of Patni Telecom P. Ltd. vs. ITO (2008) 22 SOT 26 (Hyd.) held that the expenditure incurred in foreign exchange and communication / internet charges should be excluded from the 'export turnover' as well as from 'total turnover' for the purpose of deduction under section 10A of the Act . 21. Aggrieved, Revenue filed the present appeals. After carefully considering the submissions of the Ld. Counsel and learned D.R. on the issue and after perusing the orders of the A.O. and CIT(A), we do not find any reason to interfere. Since, the Ld. CIT(A) allowed the contention by following the order of the Coordinate Bench in the case of Patni Telecom P. Ltd. vs. ITO (supra), we find no infirmity in the order of the Ld. CIT(A). Further, this issue is squarely covered by the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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